E-Community program provides loans to small businesses

MELVERN — Melvern resident Joyce Lacey had a lot of time to think in 2009 as she recovered from a horrific traffic accident near Cassoday that killed her husband, Jim, and left her severely injured.

Lacey, who had been a caterer, florist, grocery store worker and active member of several community organizations, knew she needed to keep busy to help recover from her injuries and grief.

As mayor of Melvern, she knew the community needed more housing and new businesses.

"I feel people should be investing in their communities," she said. "But finances are really hard right now, especially in small rural towns."

After meeting with Stephanie Watson, director of Osage County Economic Development, and Tom Byler, business consultant at the Kansas Small Business Development Center at Emporia State University, Lacey decided she wanted to open Circle L Convenience Store in Melvern and apply for a loan through NetWork Kansas' Entrepreneurship (E-) Community Partnership program.

The program, established in 2007, allows a town, coalition of towns or a county to raise seed money for local entrepreneurs through the sale of tax credits to individuals or businesses within the community.

As part of the application process for her E-Community loan, Lacey said she developed a business plan for Circle L Convenience Store that included financial data, demographics, marketing strategies and other information. She was approved for a $45,000 E-Community loan, which she will use to cover operating costs and purchase inventory.

Watson said the Bank of Osage City matched the E-Community loan, and Lacey will use that money to construct the building and purchase equipment.

Circle L Convenience Store, which will have 24-hour gas pump service and offer pizza, submarine sandwiches and soft-serve ice cream, will break ground in January and open about 90 days later. The business will employ three full-time and four part-time workers.

"The E-Community program is a tremendous help for small businesses," Lacey said. "A lot of people aren't aware they can get these tax credits and help their own counties."

HOW IT WORKS

Erik Pedersen, director of Entrepreneurship (E-) Communities, said NetWork Kansas allocates tax credits to a community, which then sells the tax credits to individuals or businesses. The money from the sale of the tax credits is put into an account — each community has a separate account — that is owned and managed by NetWork Kansas. The funds in the accounts are available to make matching loans in the community.

"We have 30 E-Communities, so there are 30 accounts," Pedersen said.

Each community establishes a local review and leadership team with the authority to decide who receives a loan, as well as the interest rate, the term rate and other factors pertaining to the loan. The communities also partner with an administrative organization that closes the loan, collects payments and forwards the money to the community's account. The funds in the account can be used for subsequent loans.

"They can use the loans for anything as long as it's tied to a for-profit business," he said, explaining the funds could go toward working capital, building construction, equipment or inventory purchases, or other operational costs.

During the first five years of the E-Community partnership, more than $6 million have been raised, according to NetWork Kansas data. Those funds are estimated to generate more than $34.1 million of investment in rural businesses across Kansas.

Watson said Osage County established a financial advisory board of representatives from nine communities in the county, applied to become part of the E-Community program in 2009 and, once approved, began selling tax credits to local individuals and businesses.

"It was unbelievable how easy it was to sell them," she said, adding people were interested in keeping their money locally.

During its first year of participation, $84,000 in tax credits were allocated to Osage County, she said. Last summer, the county was awarded an additional $50,000 in tax credits, with $45,000 from their sales going to Lacey.

"As a rural community, we have to compete with Topeka and Kansas City, and this gives us the tools to offer attractive business incentives," Watson said. "For Joyce (Lacey) to use this fund was a critical point in her business plan because a convenience store with fuel tanks and other items to make the business work is very expensive. Funding was critical to her business getting off the ground.

"Osage County loaned $45,000, and that leveraged $438,000 and will create seven new jobs."

BOOSTING ECONOMIC DEVELOPMENT

Collin Bielser, management/economic analyst for the city of Eudora, said three small communities in Douglas County — Baldwin City, Eudora and Lecompton — have formed a coalition and are working together to take advantage of the opportunities offered through the E-Community program.

"I tend to think regionalism. What's good for Baldwin is good for Eudora," he said, adding the Douglas County E-Community Leadership Team is comprised of representatives from each town and the Douglas County Commission.

In summer 2011, Bielser said, Douglas County was allocated $60,000 in tax credits by NetWork Kansas. Loans made possible by the sale of the tax credits were used to help a Eudora dance studio triple its space and add two or three part-time workers and to relocate a dinner train business from Nebraska to Baldwin City, which created a full-time position and 18 to 20 part-time jobs.

"We're now working on a Baldwin City project to put in an RV park at the hotel there," he said.

Bielser said Central National Bank provided matching funds for the dance studio project, while several other funding partners were involved in the dinner train relocation. He said he hasn't computed how much money was leveraged as a result of the loans.

Next year, Douglas County will receive $100,000 in tax credits. Bielser said two projects have already been pre-approved for loans as a result of that allocation: a small printing business in Lawrence will use the loan to relocate to a two-story Eudora building, and Heartland Perma Column, a precast concrete piers and post business in Baldwin City, will purchase equipment with the loan money.

"The E-community program can provide money to help a small entrepreneur get started and help them succeed," he said.

Pedersen said tax credit sales are capped at $50,000 per individual or business, which is the equivalent of about $666,600 in cash. Likewise, loans are capped at $45,000 per individual or business.

Steve Radley, president and CEO of NetWork Kansas, said he wasn’t sure how Kansas' new law exempting some businesses from paying state income taxes beginning Jan. 1 will affect the E-Community program.

"The tax credit we use is vital to what we do," Radley said. "I'm optimistic we will still be able to find a donor base."

For more information about the E-Community program, call Pedersen at (316) 978-7310 or email him at epedersen@networkkansas.com. To learn more about NetWork Kansas, go online to www.networkkansas.com or call (877) 521-8600.

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